Dairy demand drives deficit down

Record dairy product export levels have driven New
Zealand's current account deficit to its lowest quarterly
result since March 2010, underpinning expectations of a strong
flourish to gross domestic product data out today. The current
account measures New Zealand trade flows and investment
returns.

New Zealand exported record amounts of dairy produce in the
quarter to December, which drove the balance on goods and
services to its highest surplus, Statistics New Zealand (SNZ)
balance of payments manager Jason Attewell said.

The deficit for the quarter to December stood at $800
million, having dropped by $1.7 billion from the previous
quarter to September, while the annual current account
deficit also fell.

For the year to December, the deficit was $7.5 billion, or
3.4% of gross domestic product (GDP), while for the year to
September it stood at $8.9 billion, or 4.1% of GDP.

SNZ said the seasonally adjusted balance on goods and
services turned to a $1.8 billion surplus, the highest since
the series began in 1987 and a $1.9 billion turnaround from
the September quarter deficit, which was driven by the $1.4
billion increase in exports of goods, led by dairy.

ASB economist Christina Leung said the surge in dairy exports
reflected the strong rebound in milk production in the
previous quarter.

''While there has been some easing in global dairy prices in
recent auctions, overall global demand remains strong. We
expect the continued high level of dairy exports, reflecting
both strong volumes and high prices, will drive a continued
improvement in the current account over much of 2014,'' Ms
Leung said.

SNZ said while there was the rise in goods exports, led by
dairy, that was offset by an increase in New Zealand's
investment income deficit as foreign-owned companies here
earned their highest profits in four years, mostly due to
higher profits in the corporate sector during the quarter to
December.

Ms Leung said the investment income deficit was slightly
higher than expected, at $2.6 billion, reflecting increased
outflows on higher income earned from foreign investment in
New Zealand.

''We expect further deterioration in the income balance over
2014 as the acceleration in New Zealand economic growth
drives continued improvement in the profitability of New
Zealand companies, which in turn will mean increased income
outflows,'' she said.